Goods and Services Tax (GST) is one of the most groundbreaking tax reforms in India. It is a multi-staged and destination-based tax. It is multi-staged because every item that is liable to GST goes through several changes of hands starting from the moment they are manufactured till the time it reaches the consumer. And it is destination-based because the item is taxed at the last stage in the supply chain. The consumer, therefore, pays the GST.
GST after its implementation has eliminated all the Indirect Taxes. There were seventeen Indirect Taxes before GST some of which are state VAT, luxury tax, entry tax, octroi tax, entertainment tax, central excise duty, etc. GST has brought all these Indirect Taxes under one single umbrella.
Indirect Taxes vs. GST
There were quite a few difficulties before the implementation of GST. India’s tax system has always been notorious because of its complexities. In the previous tax regime, it was difficult for fresh businesses and startups to navigate through the multiple indirect taxes levied. GST has, however, simplified the overall system in many different ways. The registration for GST through the GSTIN is also a very simple process.
Some features of Indirect Taxes are:
- They are levied on manufacture, sale, and purchase of goods.
- The impact and incidence of Indirect Taxes get shifted from the supplier to the buyer of goods and services.
- Indirect taxes lead to inflationary prices.
- Products such as tobacco, alcohol, are taxed at higher rates compared to other necessary goods and services. The intention behind higher rates is to discourage consumption and to increase the overall revenue collected from taxes by the State.
- Indirect Taxes do not vary depending upon whether the buyer is rich or poor. They are regressive. However, higher taxes are imposed on luxury goods.
- Indirect Taxes contribute about 50% of the total tax revenue in India. Therefore, this tax is a huge source of tax revenue for the Indian Government.
The Goods and Services Tax (GST) on the other hand has promised to alleviate the problems that were caused by the previous Indirect Tax regime. GST can be hailed as the largest fiscal game changer for the Indian economy.
Under the Indirect Tax regime, the Center, State as well as local governments held the power to levy several types of taxes. Some of the main sources of revenue for the Centre and State governments were central excise duty, service tax, customs duty, central sales tax, Value Added Tax (VAT).
GST has brought one single, streamlined process. It has also helped India become a unified common market for wider trade and commerce. Goods and Services Tax is expected to bring back a lot of money into the economy. This tax is implemented at every individual step of value addition.
Impact of GST
There are four tiers of tax rates under GST. They are:
- 5% on household necessities such as sugar, spices, edible oil, coffee, tea, etc,
- 12% in goods such as processed food, computers.
- 18% on products like soaps, toothpaste, capital goods, industrial goods, etc.
- 28% on luxury items which include small cars, air-conditioners, refrigerators, cigarettes, carbonated drinks, motor-cycles, etc.
GST had initially led to a short-term fuel inflation but later, has benefited the Indian economy in different ways. Prices have now gone down due to the reduced burden of multiple tax payments. There has also been an increase in production and competitiveness of the India market.
The tax structure is also much simpler now due to the elimination of the multiple Indirect Taxes. GST saves both money and time as it is one single unified Indirect Tax. It has brought in a uniform tax regime in India.
The Goods and Services Tax has had a positive influence towards the competitiveness of Indian products into the international market. With a simpler tax structure, there is more transparency as there is mandatory checking for traders and shopkeepers. Most importantly, Goods and Services Tax (GST) had eliminated the “tax-on-tax”/cascading effect.
Before the Goods and Services Tax (GST) was implemented, the consumers had to pay a much higher price for goods and services. However, very little change was observed in the everyday consumable products. The Small and Medium Enterprises (SMEs) have faced a major drawback due to the introduction of GST, as there has been an increase in prices of goods in SMEs. Apart from a few demerits, the Goods and Services Tax (GST) has till now proven beneficial for both the government as well as the taxpayers.
GST has been a noteworthy step into the field of Indian Indirect Tax framework. Its transparent character makes GST much easier to administer. GST is still in its preliminary stage; therefore, it will be inappropriate to assess its ultimate impact on the economy. It is evolving and is expected to hold greater promises with respect to sustainable growth for the Indian economy.